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Tuesday, May 5, 2015

What is income protection insurance?

Income
protection insurance pays you a regular income if you can't work because of
sickness or disability and continues until you return to paid work or you
retire. Income protection insurance is also known as permanent health insurance.

The amount
of income you are allowed to claim will not replace the exact amount of money
you were earning before you had to stop work. You can expect to receive about a
half to two-thirds of your earnings before tax from your normal job. This is
because some money will be taken off for the state benefits you can claim, and
also the income you get from the policy is tax free.You can’t
claim income protection payments straightaway if you fall ill or become
disabled. You usually have to wait a minimum of four weeks but payments can
start up to two years after you stop work. This is because you may not need the
money straightaway as you may get sick pay from your employer or you may be
able to claim statutory sick pay for up to 28 weeks after you stop work.There are
other types of illness insurance you can take out such as critical illness insurance.
You should compare income protection insurance with other types of illness insurance
before you decide whether to buy it. For more information about these

What you need to think about before you take out income protection
insurance

Before you
think about taking out income protection insurance, ask yourself the following
questions:

Do I really
need income protection insurance?

Check:

that you don't already
get income protection insurance through work. Some employers offer this as
a benefit. Your employment contract, handbook or personnel department will
have details if this is the case

whether you have some
other kind of illness insurance combined with another insurance policy or
with your mortgage which covers you for serious illness

whether you have
savings you can use instead of insurance. However, you need to think very
carefully about whether you want to rely on savings. You may not be able
to save enough to cover a long period of ill-health. And you may face
another emergency, which would use up your savings and leave you with no
cover for illness.

Is this the
best type of illness insurance for me?

Check out
all the different types of illness insurance to see which one would suit you
best. For example, if you're worried about the cost of income protection
insurance, you could think about taking out critical illness insurance instead which can be a
much cheaper option. However, critical illness only covers a very limited range
of illnesses and for a shorter period of time than income protection insurance.If you're
not sure which type of illness insurance would be best for you, you can help
from an independent financial adviser.

Do you have
enough money to pay for illness insurance?

The costs
(or premiums) of
payment protection insurance can be high and you may never need to use it. You
won’t get any money back if you never make a claim.

What you need to know before you take out income protection
insurance

You should
always check the terms and conditions of any insurance policy very carefully
before you sign up to make sure it meets all your needs. You will need to be
sure of exactly what you can claim for, when you can claim and how much you're
likely to get.There are
rules which say the policy documents must be written in easy-to-read plain
English, so you can understand what you're signing up to.

Are there
any exclusions?

Illness
insurance policies don’t always cover every type of illness.On top of
this, you may not be covered for certain illnesses which either you or a member
of your family has had before. These are known as pre-existing medical conditions.Insurers
will look at your family medical history and some policies will cover existing
medical conditions but others will not. If your family medical history means
that there will be conditions attached to you taking out the policy, your
insurer should explain these to you before you sign up for the policy.You also
need to know if you will still be covered if you can do other kinds of work
than your own. Some policies say you can’t make a claim if you stop being able
to do your own job but can do other types of work. You should check the
insurance policy to see if it says this.

How long you
have to wait before the policy will pay out

With most
policies you usually have to wait a minimum of four weeks after you stop work
for payments to start. This is called the waiting period. Some waiting periods last up to
two years. The amount of money you pay for the insurance policy (called the
premiums) may be cheaper if you can wait longer before you make a claim.

How much
you'll get if you make a claim

You will
need to know exactly how much you’ll get if you make a claim. The amount of
your payments may be affected if you have other income such as state benefits
or payments from other insurance policies.You should
also find out whether the payments will go up each year in line with the cost
of living.

How the
insurers have assessed your job

When they're
working out whether to cover you and how much to charge you for your policy,
insurers will assess how dangerous your job is. Different insurers may assess
the same job differently, so it’s important to know which category your job
falls into as you could get a cheaper premium elsewhere.

What you must tell your insurer before you take out income
protection insurance

You must
give your insurer full details of you and your family’s medical history. If you
leave anything out and then later try to make a claim, your insurer may refuse
to pay out.If you
already have a pre-existing medical condition, look for an insurer that will be
prepared to cover it, although you may have to pay more to take out the policy.
A pre-existing medical condition is one you've had before.You should
also tell the insurers if you take part in any dangerous hobbies or have a
lifestyle that includes smoking, heavy drinking or drug taking. If you don't
tell them about something which later affects your claim, they may refuse to
pay out on the policy.You don’t
have to discuss personal or sensitive information with the person who sells you
the policy. You can ask to send the information directly to the insurer’s
medical officer.If you are
already in ill health, or have a dangerous job, you may not be able to get
income protection insurance or you may have to pay more to take out the
insurance.

How to work out the level of cover you need for income protection
insurance

To work out
the level of cover you need for income protection insurance:

start with how much
your take home pay currently is

take away the amount
you would get in state benefits

take away any work
related costs such as travel, food and clothing

add on any extra
expenses you might need if you become ill or disabled such as extra
heating costs or the costs of medical equipment

For more
help on how to work out how much cover you would need, go to the Money Advice
Service website at www.moneyadviceservice.org.uk. An insurer or
independent financial adviser can also help with working out these costs as
some may be difficult to predict in advance.

How to buy income protection insurance

You can buy
income protection insurance from:

an independent
financial adviser, who can look at all the policies on offer and choose
the one best suited to you. You may have to pay for this advice

directly from an
insurance company.

If you want to buy income protection insurance directly from
an insurance company, you should shop around to see who will give you the best
deal. You can use a comparison website to do this. You probably won't be able
to buy the insurance online as you will need to be assessed by the company for
your suitability. But you will be able to apply for a quote online or find
details of insurance advisers you can speak to.

What affects the cost of income protection insurance?

The costs of
taking out income protection insurance are affected by the following things:

your
age.
The older you are when you take out the policy, the more you are likely to
pay, as your risk of getting ill increases

your
sex.
Men make slightly more claims than women, so may pay more

your
health. If you're in good health, you will pay less to insure yourself

your
job.
If you do a risky job, you will pay more for cover

hobbies
and lifestyle. If you take part in dangerous hobbies or you smoke or drink
heavily, you will pay more for cover.

the
waiting period The longer you can wait before you make a claim, the cheaper your
premiums will be

whether you might be
prepared to do other kinds of work than your own if you get ill. It
usually costs less to take out income protection insurance if you say you
will only make a claim if you are unable to do any work at all, rather
than just your own job.

Cancelling your income protection policy

If you take
out income protection insurance, you usually have 30 days to cancel the policy
and get a full refund.If you
decide to cancel the policy after 30 days, the money you are refunded may be
less than the amount you have put in. Check your policy’s terms and conditions.